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Rand gains as Fed stokes risk buying

Possible interest rate cuts from the US Federal supports currency.
The rand is also being buoyed by the PIC's proposed rescue plan for Eskom, which is yet to be accepted. Picture: Waldo Swiegers, Bloomberg

South Africa‘s rand rallied to a five-month high on Friday as expectations the Federal Reserve would cut US interest rates and the prospect of a debt-equity swap for ailing utility Eskom stoked demand for the currency.

At 0650 GMT, the rand up 0.4% at 13.92 per dollar from its close of 13.97 in New York, boosted by comments from Fed Chairman Jerome Powell that bolstered rate-cut expectations.

Bets the Fed would cut rates by 50 basis points at its July 30-31 meeting were undermined by data showing accelerating inflation and declining unemployment claims, but risk demand remained buoyant.

“The translation of higher UST yields has not dampened the flight to risky assets yet, with the rand in particular, enjoying the fruits these inflows,” Standard Bank’s chief trader, Warrick Butler, said in a note.

Since breaching 14.00 on Wednesday, the rand has seen steady inflows, bringing gains at the end of the week to about 2.5%, with resistance at 13.85 not far off.

Also helping the currency were media reports on Thursday that state asset manager Public Investment Corporation might consider converting the $6.4 billion debt of struggling state power utility Eskom to equity.

Read: Eskom gets rescue option as PIC proposes debt-equity swap

Finance minister Tito Mboweni told lawmakers late Thursday the treasury intended to introduce a bill in parliament on July 23 to give Eskom more money for the current financial year and next.

Read: Eskom new funding bill expected July 23

Bonds retreated, with the yield on the benchmark 2026 issue rising by 2.5 basis points to 8.055%.

In equities, the focus was on results from furniture maker Steinhoff, which are expected late in the session. In 2017, the company disclosed holes in its accounts that to the exposure of an accounting fraud worth more than $7 billion.

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